MNI: Fixing Price Guides Yuan Rally, Pressure Ahead In Q4

The yuan is likely to see moderate near-term appreciation under central bank guidance and capital inflows into A-shares, though potential monetary easing in both China and the U.S. will be key factors, Chinese forex experts told MNI.

The sharp rally to 7.12 against the dollar since late August is likely unsustainable, with the currency expected to fluctuate around 7.17 for the rest of the year, peaking near 7.10, while depreciation toward 7.20 by year-end cannot be ruled out, said China Foreign Exchange Investment Research Institute chief analyst Sun Bin. He predicted resistance near 7.10 and said a break below 7.0 is highly unlikely this year.

While last week’s sharp yuan gains were fuelled by heavy inflows into A-shares, Sun said momentum may not last, as these were partly driven by risk-off sentiment after a U.S. appeals court on Aug 29 struck down most of President Donald Trump’s global tariffs.

A possible PBOC rate cut in Q4, which would add depreciation pressure, and reaction to the U.S. court ruling, which could spark another yuan rally, will be significant for the currency’s direction, he continued. 

A Hong Kong-based FX trader told MNI the PBOC’s sharp upward adjustment of the yuan’s central parity last week had a big impact on expectations. While the U.S. dollar rebound has weighed on yuan spot rates since July, the fixing has leaned toward appreciation through the counter-cyclical factor, widening the gap between spot and parity, he argued. (See MNI INTERVIEW: PBOC Should Be Flexible, Let Yuan Strengthen-Yu)

Authorities hiked the parity rate by 291 pips last week, the largest one-week strengthening since September 2024, with the onshore yuan breaking through 7.13 on Aug 29 and the offshore yuan reaching 7.1159, their strongest levels since November 2024. Over the past two weeks, CNY and CNH appreciated by 0.8% and 0.9%, among the best performers of major currencies.

Given divergence between spot and parity, further policy signals or stronger cross-border inflows could push the yuan closer to the fixing in the near term, the trader added. Traders expected to see the yuan between 7.10 to 7.15 in the second half, with the PBOC more tolerant of appreciation than depreciation. (See MNI: PBOC Seen Guiding Slow Yuan Strength Amid Trade Talks)

POLICY STANCE
The dollar index has fallen nearly 10% in 2025, but the yuan has gained only 2.4%, which veteran international finance expert Zhao Qingming said shows China’s currency remains undervalued compared with the yen, euro and pound.

Continued slow strength in A-shares through year-end and into Q1 2026 should also support the yuan, he added, with stock and FX markets typically moving together on capital flow dynamics. Yuan fluctuations usually mirror about one-fifth to one-half of dollar index moves for a whole year, he noted. 

Sun added policymakers have prioritised yuan stability this year to smooth capital flows and safeguard growth, as sharp depreciation could spur outflows, hurt equities and blunt monetary easing.

Authorities defended the 7.30 level in 2024 to keep dollar-denominated GDP growth above 2.5% and protect yuan-denominated assets’ value in assessments by institutions such as the IMF and World Bank, Sun said. This year, authorities face the dual challenge of maintaining 2.5% growth in dollar terms while meeting the 5% yuan-denominated GDP target, with Sun noting that appreciation beyond 7.10 would add pressure to exports. 

FUTURE PRESSURES

Analysts noted future risks include a dollar rebound, an A-share correction, and uncertainty around Fed easing. 

With a 25bp Fed cut already priced for September, Zhao said the dollar may rebound after the decision, though he still sees scope for the index to slip toward 95 later this year from around 98.

Sun said the prospect of another Fed cut in December could weaken the dollar in November, prompting modest yuan gains, though a near-term A-share correction could temporarily sap its strength. 

Next year poses greater uncertainty, particularly if new Fed leadership delivers deeper-than-expected cuts, putting greater upward pressure on the yuan, he argued. 

Some market participants expect the yuan rally to encourage exporters to accelerate FX settlements, further boosting the currency, but Sun said the wide U.S.-China rate gap means firms are in no hurry, as high U.S. yields offset FX losses unless the yuan strengthens beyond 7.0.